Definition: The
National Association of Purchasing Managers (NAPM) index is a leading indictor
of economic activity. It is based on a survey of over 250 companies within
twenty-one industries covering all 50 states. Its importance derives form
the fact that it is the first indicator each month of manufacturing performance
during the past 30-day period and is also a leading indicator of future
economic activity and pricing decisions.

Related Indicators:

Source: National
Association of Purchasing Managers (NAPM)

Frequency: Monthly

Availability: First
working day of the month following the reported period.

Direction: Pro-cyclical

Timing: Leading indicator

Volatility:
Moderate

Likely Impact of Financial Markets:

Interest Rates: Stronger-than-expected
monthly index signal high economic activity in the future that may be inflationary
under conditions of full capacity; Since that is inflationary, interest
rates will tend to rise and the Fed is more likely to tighten monetary
policy.The bond market views a strong report
as bearish and a weak report as bullish.

Stock Prices: Ambiguous. On one
side it signals high economic activity and profits in the future that is
bullish for the stock market. On the other side, it may lead to higher
inflation and interest rate that is bearishj for the market. The second
effect dominates when the economy is close to full capacity.

Exchange Rates: Modest effect. As
long as it signals higher future interest rates, it leads to a currency
appreciation.

Ability to Affect Markets: Strong as
it is the first indicator providing information about economic activty
in the previos month and is also a leading indicator of the business cycle.

Analysis of the Indicator:The survey covers the six areas:
Production; Orders; Commodity Prices; Inventories; Vendor Performance;
Employment. Participants to the survey are asked to characterize each of
these categories as "up", "down", or "unchanged". The calculated index
is next seasonally adjusted. A reading of 50 indicates that conditions
are unchanged. A reading over 50 suggests an expanding economy and under
50, a declining economy. The index for the Chicago region is published
a day before national index. While the Chicago index is volatile and not
a perfect predictor of the national index, it is also an important early
leading indicator of economic activity.